The Jakarta Post | Mon, 04/23/2012 10:03 AM

Overlapping land use rights and mining permits (IUP) are two of the most common challenges facing investments in the mining industry. Such a situation, experts say, has been made worse by the proliferation of regional autonomy, which in many cases gave birth to poor resource management due to lack of capacity, corruption and political bickering. To gain insight on the matter and to discuss other issues facing the industry,The Jakarta Post’s Rangga D. Fadillah spoke with PT Aneka Tambang president director Alwinsyah Lubis. Below are excerpts from the interview.

Question: How do overlapping permit problems influence the investment climate in the mining sector?

Answer: Legal certainty is vital for mining companies. With the implementation of regional autonomy followed by the enactment of the 2009 Law on Minerals and Coal, which grants regional heads, regents or mayors, the right to issue IUPs, everything gets uncertain. A new regent or mayor can revoke permits issued by their predecessors. It causes difficulty for companies to make their long-term business plans.

Why do you think regional heads would do such a disturbing action?

It is no longer a secret that politicians in regions look for financing by selling mining permits to private companies. That condition has caused difficulty for companies because they are being used by the politicians just to win regional elections. Private companies can deal with that better, they can support one of the candidates and if the candidate wins, their operations can be safe. But for a state-owned enterprise [SOE] like Antam, the problem is mind-blowing. The SOE Minister Dahlan Iskan has repeatedly reminded that SOEs cannot get involved in politics by supporting a regent or mayor in any reason.

There are some regional heads who think that they do not get enough from minerals, and they have in their soil moreover after the implementation of the Regional Autonomy Law [in 2004] and soaring commodity prices. The pressure to mining companies has started to mount. For the regional heads who really think for the future of their regions and people, with pleasure, we will help them. We have no problem to support the regional administration programs. But for those who think in their own interests, who seek money for their political purposes, we cannot accommodate them.

What is the core of the problem? Is it the implementation of the regional autonomy?

I think that regional autonomy is principally good, but what I am most concerned with is the readiness of human resources in the regional administrations and the people in receiving the very great authority to manage their own regions. In some regions that have potential natural resources, the capability of regional government officials is very poor. For example, I met a head of the mining agency in a region who knew nothing about mining, he did not even know what safety standard should be applied if we wanted to open a new mining area. They mostly lack technical capability to work properly.

With that situation, what do you think the central government can do to maintain the country’s healthyinvestment climate?

The government has been on the right track. I know it is impossible to take back the right to issue mining permits from regional heads, it can spark chaos. Thus, issuing the 2009 Minerals and Coal Law, which mandates companies to stop exporting metal ore in 2014, is the right policy. The government has also issued the 2012 ministerial regulation on the export ban to affirm the law. The two legal means aim to limit overexploitation on our natural resources, which in the end can limit regional heads seeking money from selling mining permits.

If regional administrations do not support the central government’s effort to reduce over-exploitation, it can cooperate with the customs agencies across the country and head of harbors to monitor all export activities and therefore the possibility of companies to illegally export raw materials. The Navy can also help in securing the sea.

Do you agree with the export ban policy?

I know there are many complaints from mining companies because there are not too many smelters available in the country. But, I think the regulation aims to become a form of shock therapy.

How about the planned export tax for raw material exports?

I have no problem with that, I believe it is the way of the government to control exports and add the value of our natural resources. Business wise, it will indeed add more burden to companies, but I think it is still bearable.

If the plan to build more smelters and add to the value of minerals is successful, how can the country benefit from increased revenues?

The mining sector now contributes around 5 percent to our gross domestic product (GDP). If the plan is successful, we can boost that percentage. An illustration. Bauxite ore is sold at around $25 per ton. A ton of bauxite can be processed into 0.5 ton of alumina.

A ton of alumina is worth $200 which means that a ton of bauxite ore, if it is processed into alumina, can earn $100. It is four times of the value of the ore. Moreover, if the alumina is processed into aluminum, 0.5 of alumina can be turned into 0.25 ton of aluminum. A ton of aluminum is $2,500, or $625 per 0.25 ton. It is 25 times of the ore’s value. You can imagine that.